SEC Filing - REX American Resources Corporation

============================================================================== SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 ------------------ FORM 10-K ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 FOR THE FISCAL YEAR ENDED JANUARY 31, 1998 COMMISSION FILE NO. 0-13283 ------------------ REX STORES CORPORATION (Exact name of registrant as specified in its charter) ------------------ Delaware 31-1095548 (State or other jurisdiction of (I.R.S. Employer Identification No.) incorporation or organization) 2875 Needmore Road, Dayton, Ohio 45414 (Address of principal executive offices) (Zip Code) Registrant's telephone number, including area code (937) 276-3931 ------------------ Securities registered pursuant to Section 12(b) of the Act: Name of each exchange Title of each class on which registered ------------------- ------------------- Common Stock, $.01 par value New York Stock Exchange Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes [X] No [ ]. Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. [X] At the close of business on April 14, 1998 the aggregate market value of the registrant's outstanding Common Stock held by non-affiliates of the registrant (for purposes of this calculation, 1,933,181 shares beneficially owned by directors and executive officers of the registrant were treated as being held by affiliates of the registrant), was $84,100,490. There were 7,708,322 shares of the registrant's Common Stock outstanding as of April 14, 1998. DOCUMENTS INCORPORATED BY REFERENCE Portions of REX Stores Corporation's definitive Proxy Statement for its Annual Meeting of Shareholders on June 4, 1998 are incorporated by reference into Part III of this Form 10-K. ===============================================================================

PART I ITEM 1. BUSINESS GENERAL REX Stores Corporation (the "Company") is a leader in the consumer electronics/appliance retailing industry, locating its stores in small to medium sized markets. Since 1980, when its first four stores were acquired, the Company has expanded into a national chain operating 222 stores in 35 states under the trade name "REX." The stores are located predominately in the Midwest and Southeast, with a recent expansion into the western region of the United States through the opening of 16 stores in the Northwest during fiscal 1996, 1997 and 1998. The Company's stores average approximately 10,800 square feet and offer a broad selection of brand name products within selected major product categories including televisions, video and audio equipment and appliances. The Company's business strategy emphasizes depth of selection within its key product categories. Brand name products are offered at everyday low prices combined with frequent special sales and promotions. The Company concentrates its stores in small and medium sized markets where it believes that by introducing a high volume, low price merchandising concept, it can become a dominant retailer. The Company supports its merchandising strategy with extensive newspaper advertising in each of its local markets and maintains a knowledgeable sales force which focuses on customer service. The Company believes its low price policy, attention to customer satisfaction and deep product selection provide customers with superior value. The Company's expansion strategy is to continue to open stores in small to medium sized markets. The Company will focus on markets with a newspaper circulation which can efficiently and cost-effectively utilize the Company's print advertising materials and where the Company believes it can become a dominant retailer. The Company was incorporated in Delaware in 1984 under the name Audio/Video Affiliates, Inc. as a holding company to succeed to the entire ownership of three affiliated corporations, Rex Radio and Television, Inc. ("Rex Radio & TV"), Stereo Town, Inc. ("Stereo Town") and Kelly & Cohen Appliances, Inc. ("Kelly & Cohen"), which were formed in 1980, 1981, and 1983, respectively. Effective August 2, 1993, the Company's name was changed to REX Stores Corporation to enable the investing and consuming public to identify the Company more closely with its retail business. Unless the context otherwise requires, the term "Company" as used in this report refers to REX Stores Corporation and its three operating subsidiaries, and all references in this report to fiscal years are to the Company's fiscal year ended January 31 of each year. The Company's principal offices are located at 2875 Needmore Road, Dayton, Ohio 45414. Its telephone number is (937) 276-3931. 2

BUSINESS STRATEGY The Company's objective is to be a dominant consumer electronics and home appliance retailer in each of its markets. The key elements of its business strategy include: Focus on Small and Medium Sized Markets. The Company concentrates its stores in small and medium sized markets (generally with populations of 30,000 to 300,000) which enables it to operate on a low overhead basis and enhances its ability to become a dominant retailer in an area. Depth of Product Selection. The Company sells brand name products and emphasizes depth of product selection within its key product categories. The Company offers merchandise at a range of price points in each product category and generally maintains sufficient product stock for immediate delivery to customers. Everyday Low Prices. The Company offers its products at everyday low prices combined with frequent special sales and promotions. The Company monitors prices at competing stores and adjusts its prices as necessary to meet or beat the competition. The Company guarantees the lowest price on its products through a policy of refunding 125% of the difference between the Company's price and a competitor's price on the same item. Price/Product Focused Advertising. The Company's advertising stresses the offering of nationally recognized brands at significant savings and emphasizes its low price guarantee. The Company supports its marketing strategy principally with extensive newspaper advertising. The Company also utilizes in-store sales promotions to provide shopping excitement and generate traffic. Strong Operational Controls. The Company's information systems allow management to monitor its merchandising programs, store operations and expenses. The Company's operational controls provide it with cost efficiencies which reduce overhead while allowing the Company to provide high levels of service. Value Oriented Sales Format. The Company's knowledgeable sales force is trained to provide professional, courteous service to all customers. The Company believes its low price policy, attention to customer satisfaction and deep product selection provide customers with superior value. EXPANSION STRATEGY When deciding whether to enter a new market or open another store in an existing market, the Company evaluates a number of criteria, including: size and growth pattern of the population, sales volume potential, and competition within the market area, including size, strength and merchandising philosophy of former, existing and potential competitors. In choosing specific sites, the Company applies standardized site selection criteria taking into account numerous factors, including: local demographics, real estate occupancy expense based upon ownership and/or leasing, cost of advertising, traffic patterns and overall retail activity. 3

Stores typically are located on high traffic arteries, adjacent to or in major shopping malls, with adequate and safe lighted parking to support high sales volume. The Company will either lease or purchase new store sites depending upon opportunities available to it and relative costs. Of the 43 new stores opened in fiscal 1997 and 1998, 20 were leased sites and 23 were Company purchased sites. For leased stores, the Company anticipates per store capital expenditures of approximately $75,000 to $225,000. This amount may increase significantly to the extent the Company is responsible for the remodeling or renovation of the new leased site. The Company anticipates expenditures of approximately $800,000 to $1,200,000 when it purchases real estate, which include the cost of the land purchased, building construction and fixtures. The purchase amount varies depending upon the size and location of the store. Historically, the Company has obtained long-term mortgage financing of approximately 75% of the cost of opening owned stores. Mortgage financing is generally obtained after a store is opened, either on a site by site or multiple store basis. The extent to which the Company will seek mortgage financing for owned stores will be dependent upon mortgage rates, terms and availability. The inventory requirements for new stores are estimated at $350,000 to $500,000 per store depending upon the season and store size. A portion of this inventory is financed through trade credit. MERCHANDISING Products The Company offers a broad selection of brand name consumer electronics and home appliance products at a range of price points. The Company emphasizes depth of product selection within selected key product categories, with the greatest depth in televisions, VCRs, camcorders and audio equipment. The Company sells approximately 1,000 products produced by approximately 55 manufacturers. The Company's product categories include: TELEVISIONS VIDEO AUDIO APPLIANCES OTHER - ----------- ----- ----- ----------- ------ TVS VCRs Stereo Systems Air Conditioners Personal Computers TV/VCR Camcorders Receivers Dehumidifiers Radar Detectors Combos Digital Satellite Systems Compact Disc Players Microwave Ovens Tapes Turntables Washers Stands Tape Decks Dryers Telephones Speakers Ranges Binoculars Car Stereos Dishwashers Fax Machines Portable Radios Refrigerators Extended Service Contracts Freezers Vacuum Cleaners The leading brands sold by the Company during fiscal 1998 (in alphabetical order) were General Electric, Hitachi, Hotpoint, JVC, Magnavox, Panasonic, Pioneer, RCA, Sharp, Toshiba, Whirlpool and Zenith. All REX stores carry a full range of the Company's televisions, video and audio products, microwave ovens and air conditioners and a limited line of home office products, and 215 stores carry major appliances. 4

The following table shows the approximate percent of net sales for each major product group for the last three fiscal years. FISCAL YEAR ------------------- PRODUCT CATEGORY 1996 1997 1998 ---------------- ---- ---- ---- Televisions............................. 37% 36% 36% Video................................... 20 18 19 Audio................................... 17 18 17 Appliances.............................. 17 18 20 Other................................... 9 10 8 ---- ---- ---- 100% 100% 100% ==== ==== ==== Pricing The Company's policy is to offer its products at everyday low prices combined with frequent special sales and promotions. The Company's retail prices are established by its merchandising department, but each district manager is responsible for monitoring the prices offered by competitors and has authority to adjust prices to meet local market conditions. The Company's commitment to offer guaranteed lowest prices is supported by the Company's guarantee to refund 125% of the difference in price if, within 30 days of purchase, a customer can locate the same item offered by a local competitor at a lower price. Advertising The Company uses a "price and item" approach in its advertising, stressing the offering of nationally recognized brands at significant savings. The emphasis of the Company's advertising is its "Guaranteed Lowest Price," which states "Our prices are guaranteed in writing. If you find any other local store stocking and offering to sell for less the identical item in a factory sealed box within 30 days after your REX purchase, we'll refund the difference plus an additional 25% of the difference." Advertisements are concentrated principally in newspapers and preprinted newspaper inserts, which are produced for the Company by an outside advertising agency and are supplemented by television and radio in certain markets. Advertisements are also complemented by in-store signage highlighting special values, including "Value Every Day," "Best Value," and "Top of the Line." The Company's advertising strategy includes preferred customer private mailers, special events such as "Midnight Madness Sales" and coupon sales to provide shopping excitement and generate traffic. Purchasing The Company's merchandise purchasing is performed predominantly by three members of senior management. Each individual has responsibility for a specific product category, and two share appliance buying responsibility. Because the Company purchases complete product lines in large volume, the Company believes it is able to obtain quality products at competitive prices and advertising subsidies from vendors to promote the sale of their products. For fiscal 1998, five vendors accounted for approximately 55% of the Company's purchases. The Company 5

typically does not maintain long-term purchase contracts with vendors and operates principally on an order-by-order basis. STORE OPERATIONS Stores The Company designs its stores to be "destination stores," generating their own traffic, but in the general vicinity of major retail shopping. Currently, approximately 143 stores are located in free-standing buildings, with the balance situated in strip shopping centers and malls. In fiscal 1997 and 1998, 18 of the Company's 20 new leased stores were in mall locations that provide exterior access and signage rights. The Company will select locations for future leased stores based on its evaluation of individual site economic and market conditions. The Company's stores average approximately 10,800 square feet including storage space, not including the two stores located in the Company's regional distribution centers. Stores typically have, on average, approximately 7,500 square feet of selling space and approximately 3,300 square feet of storage. Stores are open seven days and six nights per week, except for certain holidays. 6

The following table shows the Company's store locations as of January 31, 1998: STORE LOCATIONS Alabama: (11) Idaho: (2) Michigan: (3) North Dakota: (3) Tennessee: (6) - ------------ ---------- -------------- ----------------- -------------- Auburn Idaho Falls Adrian Bismarck Bristol Daphne Pocatello Bay City Grand Forks Chattanooga Decatur Benton Harbor Minot Cleveland Florence Iowa: (12) Johnson City Gadsden ---------- Minnesota: (1) Ohio: (16) Kingsport Huntsville Burlington --------------- ------------ Morristown Mobile (2) Council Bluffs Willmar Ashtabula Montgomery Des Moines (2) Beavercreek Texas: (13) Oxford Dubuque Missouri: (3) Dayton (2) ------------- Tuscaloosa Ft. Dodge ------------- Defiance Austin (2) Marshalltown Jefferson City Kettering Brownsville Arkansas: (1) Mason City Joplin Lima Denton - ------------ Ottumwa St. Joseph Marion Harlingen Springdale Sioux City Miamisburg Lake Jackson Waterloo Mississippi: (11) Middletown Longview Colorado: (3) West Des Moines ----------------- New Philadelphia Midland - ------------- Columbus Piqua Odessa Grand Junction Illinois: (11) Gautier Sandusky San Angelo Greeley --------------- Greenville St. Clairsville Sherman Pueblo Alton Gulfport Springfield Temple Bradley Hattiesburg Wooster Victoria Florida: (27) Carbondale Jackson (2) - -------------- Champaign Meridian Oklahoma: (2) Virginia: (1) Charlotte Harbor Danville Ridgeland -------------- -------------- Crystal River Decatur Tupelo Enid Danville Ft. Pierce Galesburg Vicksburg Lawton Gainesville Pekin Washington: (2) Hudson Peru Montana: (2) Pennsylvania: (18) --------------- Lake City Quincy ------------- ------------------- Union Gap Largo Sterling Butte Altoona Wenatchee Leesburg Great Falls Bloomsburg Mary Esther Indiana: (3) Chambersburg West Virginia: (5) Melbourne ------------- Nebraska: (3) Cranberry ------------------- Merritt Island Anderson ------------- Erie (2) Beckley Naples Muncie Grand Island Greensburg Bluefield Ocala Richmond Norfolk Hanover Bridgeport Palm Harbor North Platte Hazleton Morgantown Panama City Kansas: (2) Hermitage Vienna Pensacola (2) ------------ New York: (17) Indiana Sarasota Hutchinson --------------- Johnstown Wisconsin: (4) St. Augustine Lawrence Auburn Lower Burrell --------------- St. Petersburg Clifton Park Meadville Fond du Lac Spring Hill Kentucky: (3) Cortland New Castle Janesville Stuart -------------- Fredonia Scranton Manitowac Tallahassee (2) Ashland Geneva Wilkes-Barre Oshkosh Titusville Hopkinsville Horseheads York Venice Paducah Kingston Wyoming: (2) Vero Beach Lakewood South Carolina: (9) -------------- Louisiana: (6) Latham -------------------- Casper Georgia: (9) ---------------- Lockport Aiken Cheyenne - -------------- Alexandria New Hartford Anderson Albany Baton Rouge Olean Charleston Augusta Houma Plattsburg Florence Brunswick Lake Charles Queensbury Greenwood Columbus New Iberia Rome Murrell's Inlet LaGrange Opelousas Schenectady Orangeburg Macon Watertown Rock Hill Rome Maryland: (2) Sumter Valdosta -------------- North Carolina: (5) Warner Robins Cumberland ------------------- South Dakota: (2) Hagerstown Asheville ------------------- Goldsboro Aberdeen Massachusetts: (2) Hendersonville Rapid City ------------------ Rocky Mount Hadley Salisbury Lanesborough 7

In fiscal 1998, the Company opened eight new stores, with one store each opened in Florida, Illinois, New York, North Dakota, Ohio, Oklahoma, Texas and Washington. The Company's operations are divided into regional districts, containing from two to 11 stores whose managers report to a district manager. The Company's 38 district managers report to one of four regional vice presidents. Each store is staffed with a full-time manager and assistant manager, commissioned sales personnel and, in higher-traffic stores, seasonal support personnel. Store managers are paid on a commission basis and have the opportunity to earn bonuses based upon their store's sales and gross margins. Sales personnel work on a commission basis, or a combination of commissions and hourly wages. The Company evaluates the performance of its stores on a continuous basis and, based on an assessment of factors it deems relevant, will close any store which is not adequately contributing to Company profitability. The Company closed 12 and eight stores during fiscal 1997 and 1998, respectively. There were no store closings during fiscal 1996. Personnel The Company trains its employees to explain and demonstrate to customers the use and operation of the Company's merchandise and to develop good salesmanship practices. The Company's in-house training program for new employees combines on-the-job training with use of a detailed Company-developed manual entitled "The REX Way." Sales personnel attend in-house training sessions conducted by experienced salespeople or manufacturers' representatives and receive sales, product and other information in meetings with managers. The Company also has a manager-in-training program that consists of on-the-job training of the assistant manager at the store. The Company's policy is to staff store management positions with personnel promoted from within the Company and to staff new stores with existing managers or assistant managers. Services Virtually all of the products sold by the Company carry manufacturers' warranties and, except for its least expensive items, the Company offers extended service contracts to customers usually for an additional charge which typically provide one to five years of extended warranty coverage. The Company offers maintenance and repair services for most of the products which it sells. These services are generally subcontracted to independent repair firms. The Company's return policy provides that any merchandise may be returned for exchange or refund within seven days of purchase if accompanied by original packaging material. The Company accepts MasterCard, Visa and Discover. The Company estimates that, during fiscal 1998, approximately 30% of its total sales were made on these credit cards, and 8

approximately 13% were made on installment credit contracts arranged through banks or independent finance companies which bear the credit risk of these contracts. Distribution The Company's stores are supplied by regional distribution centers which consist of a 315,000 square foot leased facility in Dayton, Ohio and a 180,000 square foot owned facility in Pensacola, Florida, of which the Company leases 90,000 square feet to an outside company. The Company also leases a 67,000 square foot auxiliary warehouse in Pensacola, Florida. The Company purchased land and during fiscal 1998 built a 145,000 square foot distribution center in Cheyenne, Wyoming at a total cost of approximately $2.6 million. The Cheyenne distribution center began operations in March 1998. The regional distribution centers reduce inventory requirements at individual stores, while preserving the benefits of volume purchasing and facilitating centralized inventory and accounting controls. Virtually all of the Company's merchandise is distributed through its distribution centers, with the exception of major appliances which are often shipped directly by the vendor to the retail location. All deliveries to stores are made by independent contract carriers. Management Information Systems The Company has developed a computerized management information system which operates an internally developed software package. The Company's computer system provides management with the information necessary to manage inventory by stock keeping unit ("SKU"), monitor sales and store activity on a daily basis, capture marketing and customer information, track productivity by salesperson and control the Company's accounting operations. The host computer is integrated with the Company's point-of-sale system which serves as the collection mechanism for all sales activity. The combined system provides for next-day review of inventory levels, sales by store and by SKU and commissions earned, assists in cash management and enables management to track merchandise from receipt at the distribution center until time of sale. As is the case with most business organizations, the Company utilizes software and related technology that are date sensitive and may be affected by the date change which will occur in the year 2000. Reference should be made to Part II, Item 7 "Management's Discussion and Analysis of Financial Condition and Results of Operations" for further discussion of the Year 2000 issue. COMPETITION The Company's business is characterized by substantial competition. The Company's competitors include other specialty electronics retailers, department stores, discount stores, 9

furniture stores, warehouse clubs and catalog showrooms. Some of these competitors have greater financial and other resources than the Company. Competition within the Company's industry is based upon price, breadth of product selection, product quality and customer service. FACILITIES One hundred and five of the Company's stores are located in buildings owned by the Company, including two strip shopping centers in Austin, Texas of 60,000 and 40,000 square feet. The Company uses approximately 10,000 square feet in each shopping center for a store and leases the remainder. The Company also owns a 38,000 square foot shopping center in College Station, Texas in which it does not operate a retail store. The strip shopping centers are professionally managed by local real estate management firms. The remaining 117 stores operate on leased premises, with the unexpired terms of the leases ranging from one year to 27 years, inclusive of options to renew, except for three month to month leases. For fiscal 1998, the total net rent expense for the Company's leased facilities was approximately $6,797,000. To date, the Company has not experienced difficulty in securing leases or purchasing sites for suitable locations for its stores. The Company continues to remodel and upgrade existing stores as appropriate. In addition, to minimize construction costs, the Company has developed prototype formats for new store construction. EMPLOYEES At January 31, 1998, the Company had 146 hourly and salaried employees and 878 sales employees. The Company also employs additional personnel during peak selling seasons. None of the Company's employees are represented by a labor union. The Company considers its relationship with its employees to be satisfactory. SERVICE MARKS The Company has registered its rights in its service mark "REX" with the United States Patent and Trademark Office. The Company is not aware of any adverse claims concerning its service mark. ITEM 2. PROPERTIES The information required by this Item 2 is set forth in Item 1 of this report under "Store Operations--Stores," "Store Operations--Distribution" and "Facilities" and is incorporated herein by reference. 10

ITEM 3. LEGAL PROCEEDINGS The Company is involved in various legal proceedings incidental to the conduct of its business. The Company believes that these proceedings will not have a material adverse effect on the financial condition or operations of the Company. ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS None. --------------- EXECUTIVE OFFICERS OF THE COMPANY Set forth below is certain information about each of the Company's executive officers. NAME AGE POSITION(S) ---- --- ----------- Stuart Rose...................... 43 Chairman of the Board and Chief Executive Officer* Lawrence Tomchin ................ 70 President and Chief Operating Officer* Douglas Bruggeman ............... 37 Vice President-Finance and Treasurer Edward Kress .................... 48 Secretary* - ---------------- *Also serves as a director of the Company. Stuart Rose has been the Chairman of the Board and Chief Executive Officer of the Company since its incorporation in 1984 as a holding company to succeed to the ownership of Rex Radio & TV, Kelly & Cohen and Stereo Town. Prior to 1984, Mr. Rose was Chairman of the Board and Chief Executive Officer of Rex Radio & TV, which he founded in 1980 to acquire the stock of a corporation which operated four retail stores. Lawrence Tomchin has been the President and Chief Operating Officer of the Company since 1990. From 1984 to 1990, he was the Executive Vice President and Chief Operating Officer of the Company. Mr. Tomchin has been a director of the Company since 1984. Mr. Tomchin was Vice President and General Manager of the corporation which was acquired by Rex Radio & TV in 1980 and served as Executive Vice President of Rex Radio & TV after the acquisition. Douglas Bruggeman has been Vice President - Finance and Treasurer of the Company since 1989. From 1987 to 1989, Mr. Bruggeman was the Manager of Corporate Accounting for the Company. Mr. Bruggeman was employed with the accounting firm of Ernst & Young prior to joining the Company in 1986. Edward Kress has been the Secretary of the Company since 1984 and a director of the Company since 1985. Mr. Kress has been a partner of the law firm of Chernesky, Heyman & Kress P.L.L., counsel for the Company, since 1988. From 1985 to 1988, Mr. Kress was a member of the law firm of Smith & Schnacke. Mr. Kress has practiced law in Dayton, Ohio since 1974. 11

PART II ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS SHAREHOLDER INFORMATION Common Share Information and Quarterly Share Prices The Company's Common Stock is traded on the New York Stock Exchange under the symbol RSC. Fiscal Quarter Ended High Low - -------------------------------------------------------------------------- April 30, 1996 $15.88 $15.50 July 31, 1996 12.88 12.50 October 31, 1996 9.75 9.50 January 31, 1997 8.88 8.13 APRIL 30, 1997 $10.13 $ 8.13 JULY 31, 1997 10.75 8.88 OCTOBER 31, 1997 12.00 9.50 JANUARY 31, 1998 12.38 9.63 As of April 14, 1998, there were 296 holders of record of the Company's Common Stock, including shares held in nominee or street name by brokers. Dividend Policy The Company's revolving credit agreement places restrictions on the payment of dividends. The Company did not pay dividends in the current or prior years. 12

ITEM 6. SELECTED FINANCIAL DATA Five Year Financial Summary January 31, --------------------------------------------------------------------------------------- (In Thousands, Except Per Share Amounts) (A) 1998 1997 1996 1995 1994 - ------------------------------------ -------- -------- -------- ------- ------- Net sales $411,005 $427,378 $442,217 $382,775 $298,171 Net income $ 7,412 $ 7,362 $ 14,573 $ 12,596 $ 8,632 Basic net income per share $ 0.94 $ 0.82 $ 1.62 $ 1.48 $ 1.21 Diluted net income per share $ 0.91 $ 0.80 $ 1.56 $ 1.40 $ 1.10 Total assets $260,530 $248,034 $234,599 $192,616 $132,319 Long-term debt, net of current $ 52,661 $ 51,102 $ 32,590 $ 25,595 $ 10,879 maturities (A) Per share amounts for the years ended January 31, 1994 through January 31, 1997 have been restated to conform with the requirements of SFAS No. 128 "Earnings per Share". 13

Quarterly Financial Data (Unaudited) - ------------------------------------ Quarters Ended (A) ------------------------------------------------------------------------------------ (In Thousands Except Per Share Amounts) April 30, July 31, October 31, January 31, 1997 1997 1997 1998 ---------- --------- -------- ----------- Net sales $ 88,265 $ 89,899 $ 87,967 $144,874 Cost of merchandise sold 63,870 64,051 63,475 106,361 Net income 797 1,359 383 4,873 Basic net income per share $ 0.10 $ 0.17 $ 0.05 $ 0.62 Diluted net income per share $ 0.10 $ 0.17 $ 0.05 $ 0.60 Quarters Ended (A) ---------------------------------------------------------------------------------- (In Thousands Except Per Share Amounts) April 30, July 31, October 31, January 31, 1996 1996 1996 1997 -------- --------- -------- -------- Net sales $ 97,383 $ 95,653 $ 90,543 $143,799 Cost of merchandise sold 72,503 70,931 67,990 106,343 Net income 1,756 1,475 252 3,879 Basic net income per share $ 0.19 $ 0.15 $ 0.03 $ 0.45 Diluted net income per share $ 0.18 $ 0.15 $ 0.03 $ 0.44 (A) Per share amounts for quarters ended prior to January 31, 1998 have been restated to conform with the requirements of SFAS No. 128 "Earnings per Share." 14

ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS OVERVIEW The Company is a leader in the consumer electronics/appliance retailing industry, operating predominantly in small to medium sized markets in the Midwest and Southeast under the trade name "REX." Since acquiring its first four stores in 1980, the Company has expanded into a national chain operating 222 stores in 35 states. During fiscal 1996, 1997 and 1998, the Company expanded into the western region of the United States by opening sixteen stores in seven northwestern states. The Company has focused on maintaining strict cost controls, offering customers a broad selection of merchandise at "everyday low prices" and expansion within small to medium sized markets where its low cost structure and operating strategy enhance its ability to become a dominant retailer. During fiscal 1998, 1997 and 1996, the Company opened eight, 35 and 34 stores, respectively. The Company closed eight stores in fiscal 1998 and twelve stores in fiscal 1997. No stores were closed in fiscal 1996. Comparable store sales declined 10.5%, 17.5% and 5.4% in fiscal 1998, 1997 and 1996, respectively. The decrease in comparable store sales reflects an industry wide decline in consumer demand for electronics and an intensely competitive retail environment. The Company considers a store to be comparable after it has been open six full fiscal quarters. Comparable store sales comparisons do not include sales of extended service contracts. EXTENDED SERVICE CONTRACTS The Company's extended service contract revenues, net of sales commissions, are deferred and amortized on a straight-line basis over the life of the contracts after the expiration of applicable manufacturers' warranty periods. Terms of coverage, including the manufacturers' warranty periods, are usually for periods of 12 to 60 months. Extended service contract revenues represented 3.5%, 2.9% and 2.4% of net sales for fiscal 1998, 1997 and 1996, respectively. Service contract costs are charged to operations as incurred. Gross profit realized from extended service contract revenues was $11.0 million, $9.6 million and $8.3 million in fiscal 1998, 1997 and 1996, respectively. 15

RESULTS OF OPERATIONS The following table sets forth, for the periods indicated, the relative percentages that certain income and expense items bear to net sales: Fiscal Year Ended January 31, -------------------------------------- 1998 1997 1996 ----- ----- ----- Net sales 100.0% 100.0% 100.0% Cost of merchandise sold 72.4 74.4 74.1 ----- ----- ----- Gross profit 27.6 25.6 25.9 Selling, general and administrative expenses 22.9 21.5 19.4 ----- ----- ----- Income from operations 4.7 4.1 6.5 Interest, net 1.7 1.3 1.1 ----- ----- ----- Income before income taxes 3.0 2.8 5.4 Provision for income taxes 1.2 1.1 2.1 ----- ----- ----- Net income 1.8% 1.7% 3.3% ===== ===== ===== COMPARISON OF FISCAL YEARS ENDED JANUARY 31, 1998 AND 1997 Net sales in fiscal 1998 were $411.0 million, a 3.8% decrease from the $427.4 million achieved in fiscal 1997. This decrease was caused by a decline of 10.5% in comparable store sales, partially offset by the first full year of sales for 35 stores opened in the previous fiscal year. During fiscal 1998, the Company opened eight stores and closed eight, while during fiscal 1997 the Company opened 35 stores and closed 12. The Company had 222 stores open at both January 31, 1998 and 1997. Gross profit of $113.2 million in fiscal 1998 (27.6% of net sales) was 3.3% higher than the $109.6 million (25.6% of net sales) recorded the prior year. The improved gross profit margin, as a percent of sales, was primarily the result of lower merchandise cost on certain products due to opportunistic purchasing and the recognition of a higher amount of extended service contract revenues, which generally have a higher gross profit margin. Selling, general and administrative expenses for fiscal 1998 were $94.1 million (22.9% of net sales), a 2.4% increase over the $91.9 million (21.5% of net sales) in fiscal 1997. The increase in expense was primarily due to an increase in incentive commissions for sales personnel. Selling, general and administrative expenses as a percent of net sales also increased due to the decline in comparable store sales. Income from operations was $19.2 million (4.7% of net sales) in fiscal 1998, an 8.5% increase from $17.7 million (4.1% of net sales) for fiscal 1997. The increase was primarily due to the improved gross profit margin. 16

Interest expense increased to $7.1 million in fiscal 1998 from $5.6 million in fiscal 1997. The increase in interest expense is primarily attributable to additional mortgage debt outstanding for the full fiscal year on stores opened in fiscal 1997 (average outstanding borrowings of approximately $55.1 million in fiscal 1998 compared to $40.8 million in fiscal 1997). The effective tax rate was 39.5% for fiscal 1998 and 1997. As a result of the foregoing, net income was $7.4 million for fiscal 1998 and 1997. COMPARISON OF FISCAL YEARS ENDED JANUARY 31, 1997 AND 1996 Net sales in fiscal 1997 were $427.4 million, a 3.4% decrease from the $442.2 million achieved in fiscal 1996. This decrease was caused by a decline of 17.5% in comparable store sales, partially offset by the net addition of 23 stores in fiscal 1997 and the first full year of sales for 34 stores opened in fiscal 1996. During fiscal 1997 the Company opened 35 stores and closed 12, while during fiscal 1996 the Company opened 34 stores and closed none. The number of stores open at January 31, 1997 was 222 compared to 199 at January 31, 1996. Gross profit of $109.6 million in fiscal 1997 (25.6% of net sales) was 4.3% lower than the $114.6 (25.9% of net sales) recorded the prior year. The lower gross profit margin is primarily due to competitive pressures and an increase in major appliance and computer sales, which generally have a lower gross profit margin. This was partially offset by an increase in extended service contract revenues, which generally have a higher gross profit margin. Selling, general and administrative expenses for fiscal 1997 were $91.9 million (21.5% of net sales), a 5.7% increase over the $86.0 million (19.4% of net sales) in fiscal 1996. The increase in expense was primarily attributable to $3.5 million in increased advertising costs, $1.5 million in increased occupancy and depreciation costs and $1.7 million in increased operating costs associated with more store locations in the current year. Payroll costs decreased by $800,000 due to a reduction in direct selling costs resulting from the decline in sales. The increase in selling, general and administrative expenses as a percentage of net sales is primarily the result of the decline in comparable store sales. Income from operations was $17.7 million (4.1% of net sales) in fiscal 1997, a 38.1% decrease from $28.6 million (6.5% of net sales) for fiscal 1996. This decline was primarily due to the 17.5% decline in comparable store sales and the increased selling, general and administrative expenses associated with more store locations. 17

Interest expense increased to $5.6 million in fiscal 1997 from $4.7 million in fiscal 1996. The increase in interest expense is primarily attributable to additional mortgage debt associated with more Company owned store locations (average outstanding borrowings of approximately $40.8 million in fiscal 1997 compared to $31.5 million in fiscal 1996) and an increase of approximately $3.4 million in the average outstanding borrowings on the revolving line of credit. The effective tax rate was 39.5% for fiscal 1997 and 1996. As a result of the foregoing, net income for fiscal 1997 was $7.4 million, a 49.5% decrease from $14.6 million in fiscal 1996. LIQUIDITY AND CAPITAL RESOURCES The Company's primary sources of financing have been cash flow provided by net income, mortgages on owned property and borrowings under its revolving line of credit. Net cash provided by operating activities was $35.5 million for fiscal 1998. Operating cash flow was provided by net income of $7.4 million and $200,000 of deferred income from sales of extended service contracts, adjusted for non-cash charges of $2.0 million. Cash was also provided by a decrease in inventory of $8.5 million and an increase in accounts payable of $18.6 million. At January 31, 1998, working capital was $78.9 million compared to $80.2 million at January 31, 1997. The ratio of current assets to current liabilities was 2.0 to 1 at January 31, 1998 compared to 2.1 to 1 at January 31, 1997. Capital expenditures in fiscal 1998 totaled $8.0 million and were primarily associated with the opening of eight stores and the construction of a distribution center in Cheyenne, Wyoming. During fiscal 1998, the Company purchased 567,000 shares of its common stock for $5.0 million. Subsequent to the end of fiscal 1998 and through March 26, 1998, the Company purchased 70,000 shares of its common stock for $742,000. The Company is authorized by its Board of Directors to purchase an additional 527,000 shares of its common stock and all shares purchased will be held in treasury for possible future use. 18

The Company has a revolving credit agreement with seven banks through July 31, 2000, with interest at prime or LIBOR plus 1.875%. Amounts available for borrowing are equal to the lesser of (i) $100 million for the months of January through June and $150 million for the months of July through December or (ii) the sum of specified percentages of eligible accounts receivable and eligible inventories, as defined. Amounts available for borrowing are reduced by any letter of credit commitments outstanding. At January 31, 1998, no borrowings were outstanding on the revolving credit agreement. A total of approximately $77.3 million was available at January 31, 1998. Borrowing levels vary during the course of a year based on the Company's seasonal working capital needs. The maximum direct borrowings outstanding during fiscal 1998 were approximately $37.2 million, which existed immediately prior to the Christmas selling season due to the build-up of seasonal inventory requirements. The weighted average interest rate was 9.11% for fiscal 1998. The revolving credit agreement contains restrictive covenants which require the Company to maintain specified levels of consolidated tangible net worth and limit capital expenditures and the incurrence of additional indebtedness. The revolving credit agreement also places restrictions on common stock repurchases and the payment of dividends. At January 31, 1998, the Company had approximately $55.6 million of mortgage debt outstanding (including $4.5 million obtained in fiscal 1998 from mortgaging seven stores) at a weighted average interest rate of 8.98%, with maturities from 2000 to 2012. SEASONALITY AND QUARTERLY FLUCTUATIONS The Company's business is seasonal. As is the case with many other retailers, the Company's net sales and net income are greatest in its fourth fiscal quarter, which includes the Christmas selling season. The fourth fiscal quarter accounted for 35.2% and 33.6% of net sales and 65.7% and 52.7% of net income in fiscal 1998 and 1997, respectively. Year to year comparisons of quarterly results of operations and comparable store sales can be affected by a variety of factors, including the duration of the holiday selling season, weather conditions and the timing of new store openings. 19

RECENTLY ISSUED ACCOUNTING STANDARDS Effective January 31, 1998, the Company adopted Statement of Financial Accounting Standards (SFAS) No. 128 "Earnings per Share", which replaces the calculation of primary and fully diluted earnings per share under previous accounting standards with basic and diluted earnings per share. As a result, the Company's reported net income per share amounts for the years ended January 31, 1997 and 1996 were restated as follows: PER SHARE AMOUNTS ------------------ 1997 1996 ----- ----- Primary net income per share, as reported $0.80 $1.56 Effect of SFAS No. 128 0.02 0.06 ----- ----- Basic net income per share, as restated $0.82 $1.62 ===== ===== 1997 1996 ----- ----- Fully diluted net income per share, as reported $0.80 $1.56 Effect of SFAS No. 128 - - ----- ----- Diluted net income per share, as restated $0.80 $1.56 ===== ===== In the first quarter of fiscal 1997, the Company adopted the provisions of SFAS No. 121 "Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to be Disposed of," which addresses the identification and measurement of asset impairments and requires recognition of impairment losses on long-lived assets when book values exceed expected future cash flows. The application of this standard did not have a material impact on the Company's financial position or results of operations. The Company adopted the provisions of SFAS No. 123 "Accounting for Stock-Based Compensation" in fiscal 1997, which established new accounting and disclosure requirements for stock-based employee compensation plans. The Company adopted this standard by continuing to follow the accounting prescribed by APB Opinion No. 25 "Accounting for Stock Issued to Employees" and presenting the required pro forma disclosures. Therefore, the application of this standard did not have a material impact on the Company's financial position or results of operations. 20

YEAR 2000 ISSUE The Company is currently in the process of evaluating its information technology infrastructure for Year 2000 compliance, including developing an estimate of the total costs to be incurred to remediate any Year 2000 issues. The Company believes that with modifications to existing software and conversion to new software, the impact of the Year 2000 issue can be mitigated. However, if such modifications and conversions are not made, or are not made in a timely manner, the Year 2000 issue could have a material impact on the Company's operations. Costs incurred to remediate the Year 2000 issue will be expensed as incurred. FORWARD-LOOKING STATEMENTS This Form 10-K contains forward-looking statements as defined in the Private Securities Litigation Reform Act of 1995. The words "believes", "estimates", "plans", "expects", "intends", "anticipates" and similar expressions as they relate to the Company or its management are intended to identify such forward-looking statements. Forward-looking statements are inherently subject to risks and uncertainties. Factors that could cause actual results to differ materially from those in the forward-looking statements are set forth in Exhibit 99 to this report. ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISK None. 21

ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA REX STORES CORPORATION AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS JANUARY 31, 1998 AND 1997 1998 1997 ----------- ----------- ASSETS (In Thousands) CURRENT ASSETS: Cash and cash equivalents $ 16,937 $ 3,959 Short-term investments 1,637 1,645 Accounts receivable, net of allowance for doubtful accounts of $428 and $376 in 1998 and 1997, respectively (Note 4) 2,775 1,477 Merchandise inventory (Note 4) 126,498 135,033 Prepaid expenses and other 2,078 2,219 Future income tax benefits 7,899 5,544 ----------- ----------- Total current assets 157,824 149,877 PROPERTY AND EQUIPMENT, NET (Notes 1, 4 and 5) 93,165 89,638 FUTURE INCOME TAX BENEFITS 9,541 8,519 ----------- ----------- Total assets $260,530 $248,034 =========== =========== LIABILITIES AND SHAREHOLDERS' EQUITY CURRENT LIABILITIES: Note payable (Note 4) $ - $ 12,142 Current portion of long-term debt (Note 5) 2,959 3,131 Current portion of deferred income and deferred gain on sale and leaseback (Notes 1 and 7) 11,402 10,844 Accounts payable, trade 49,832 31,265 Accrued income taxes 1,671 1,077 Accrued payroll 5,810 4,866 Other current liabilities 7,263 6,401 ----------- ----------- Total current liabilities 78,937 69,726 LONG-TERM LIABILITIES: Long-term debt (Note 5) 52,661 51,102 Deferred income (Note 1) 17,886 18,279 Deferred gain on sale and leaseback (Note 7) 5,264 6,207 ----------- ----------- Total long-term liabilities 75,811 75,588 COMMITMENTS AND CONTINGENCIES (Notes 7 and 9) SHAREHOLDERS' EQUITY (Notes 3, 4, and 6): Common stock, 45,000 shares authorized, 9,688 and 9,602 shares issued, at par 97 96 Paid-in capital 57,896 57,229 Retained earnings 64,175 56,763 Treasury stock, 1,955 and 1,388 shares (16,386) (11,368) ----------- ----------- Total shareholders' equity 105,782 102,720 ----------- ----------- Total liabilities and shareholders' equity $260,530 $248,034 =========== =========== The accompanying notes to consolidated financial statements are an integral part of these consolidated balance sheets. 22

REX STORES CORPORATION AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF INCOME FOR THE YEARS ENDED JANUARY 31, 1998, 1997 AND 1996 1998 1997 1996 --------- --------- ---------- (In Thousands, Except Per Share Amounts) NET SALES $411,005 $427,378 $442,217 --------- --------- ---------- COSTS AND EXPENSES: Cost of merchandise sold 297,757 317,767 327,636 Selling, general and administrative expenses 94,055 91,905 85,981 --------- --------- ---------- Total costs and expenses 391,812 409,672 413,617 --------- --------- ---------- INCOME FROM OPERATIONS 19,193 17,706 28,600 INVESTMENT INCOME 202 85 182 INTEREST EXPENSE 7,143 5,624 4,707 --------- --------- ---------- INCOME BEFORE PROVISION FOR INCOME TAXES 12,252 12,167 24,075 PROVISION FOR INCOME TAXES 4,840 4,805 9,502 --------- --------- ---------- NET INCOME $ 7,412 $ 7,362 $ 14,573 ========= ========= ========== WEIGHTED AVERAGE NUMBER OF COMMON SHARES OUTSTANDING 7,919 8,948 8,970 --------- --------- ---------- BASIC NET INCOME PER SHARE $ 0.94 $ 0.82 $ 1.62 ========= ========= ========== WEIGHTED AVERAGE NUMBER OF COMMON AND COMMON EQUIVALENT SHARES OUTSTANDING 8,178 9,219 9,365 --------- --------- ---------- DILUTED NET INCOME PER SHARE $ 0.91 $ 0.80 $ 1.56 ========= ========= ========== The accompanying notes to consolidated financial statements are an integral part of these consolidated statements. 23

REX STORES CORPORATION AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS FOR THE YEARS ENDED JANUARY 31, 1998, 1997 AND 1996 1998 1997 1996 ------------ ----------- ----------- (In Thousands) CASH FLOWS FROM OPERATING ACTIVITIES: Net income $ 7,412 $ 7,362 $ 14,573 Adjustments to reconcile net income to net cash provided by (used in) operating activities- Depreciation and amortization, net 2,979 2,943 2,357 Deferred income 165 3,221 4,415 Deferred income tax provision (1,015) (2,054) (1,608) Accounts receivable (1,298) 127 (527) Merchandise inventory 8,535 11,533 (31,219) Other current assets (2,228) (323) (361) Accounts payable, trade 18,567 (8,260) 6,230 Other current liabilities 2,400 (3,678) 2,098 ------------ ----------- ----------- NET CASH PROVIDED BY (USED IN) OPERATING ACTIVITIES 35,517 10,871 (4,042) ------------ ----------- ----------- CASH FLOWS FROM INVESTING ACTIVITIES: Short-term investments 8 (120) 30 Capital expenditures (8,015) (23,448) (23,080) Capital disposals 573 552 43 ------------ ----------- ----------- NET CASH USED IN INVESTING ACTIVITIES (7,434) (23,016) (23,007) ------------ ----------- ----------- CASH FLOWS FROM FINANCING ACTIVITIES: Increase (decrease) in note payable (12,142) 2,815 9,327 Proceeds from long-term debt 4,473 21,911 9,201 Payments of long-term debt (3,086) (2,318) (1,836) Common stock issued 668 497 643 Treasury stock acquired (5,018) (7,486) (2,264) ------------ ----------- ----------- NET CASH PROVIDED BY (USED IN) FINANCING ACTIVITIES (15,105) 15,419 15,071 ------------ ----------- ----------- NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS 12,978 3,274 (11,978) CASH AND CASH EQUIVALENTS, beginning of year 3,959 685 12,663 ------------ ----------- ----------- CASH AND CASH EQUIVALENTS, end of year $ 16,937 $ 3,959 $ 685 ============ =========== =========== The accompanying notes to consolidated financial statements are an integral part of these consolidated statements. 24

REX STORES CORPORATION AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY FOR THE YEARS ENDED JANUARY 31, 1998, 1997 AND 1996 Common Stock ----------------------------------------- Issued Treasury ------------------- ---------------- Paid-In Retained Shares Amount Shares Amount Capital Earnings ------- ------- ------- ------- ------- -------- (In Thousands) BALANCE, January 31, 1995 9,420 $94 372 $ 1,618 $56,090 $34,828 Net income - - - - - 14,573 Treasury stock acquired - - 162 2,264 - - Common stock issued 101 1 - - 642 - ------- ------- ------- ------- ------- -------- BALANCE, January 31, 9,521 95 534 3,882 56,732 49,401 1996 Net income - - - - - 7,362 Treasury stock acquired - - 854 7,486 - - Common stock issued 81 1 - - 497 - ------- ------- ------- ------- ------- -------- BALANCE, January 31, 9,602 96 1,388 11,368 57,229 56,763 1997 Net income - - - - - 7,412 Treasury stock acquired - - 567 5,018 - - Common stock issued 86 1 - - 667 - ------- ------- ------- ------- ------- -------- BALANCE, January 31, 1998 9,688 $97 1,955 $16,386 $57,896 $64,175 ======= ======= ======= ======= ======= ======== The accompanying notes to consolidated financial statements are an integral part of these consolidated statements. 25

REX STORES CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEARS ENDED JANUARY 31, 1998 AND 1997 (1) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES- (a) Principles of Consolidation--The accompanying financial statements consolidate the operating results and financial position of REX Stores Corporation and its wholly-owned subsidiaries (the Company). All significant intercompany balances and transactions have been eliminated. The Company operates 222 retail consumer electronics and appliance stores under the REX name in 35 states, predominantly in the Midwest and Southeast. (b) Use of Estimates--The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. (c) Cash Equivalents and Short-term Investments--Cash equivalents are principally short-term investments with original maturities of less than three months. Short-term investments, which are principally marketable securities, are stated at cost plus accrued interest, which approximates market. The carrying amount of cash equivalents and short-term investments is a reasonable estimate of fair value. Short-term investments at January 31, 1998 and 1997 are restricted by two states to cover possible future claims under product service contracts. (d) Merchandise Inventory--Substantially all inventory is valued at the lower of average cost or market, which approximates cost on a first-in, first-out (FIFO) basis, including certain costs associated with purchasing, warehousing and transporting merchandise. The inventory of an acquired subsidiary, Kelly & Cohen Appliances, Inc. (K&C), is valued at the lower of last-in, first-out (LIFO) cost or market. The K&C inventory value using the FIFO method ($30,203,000 and $38,437,000 at January 31, 1998 and 1997, respectively) approximates the LIFO value in all years presented. Five suppliers accounted for approximately 55% of the Company's purchases in 1998. 26

(e) Property and Equipment--Property and equipment is recorded at cost. Depreciation is computed using the straight-line method. Estimated useful lives are 15 to 40 years for buildings and improvements, and 3 to 12 years for fixtures and equipment. Leasehold improvements are depreciated over 10-12 years. The components of cost at January 31, 1998 and 1997 are as follows: 1998 1997 ---------- ---------- (In thousands) Land $ 24,779 $ 23,530 Buildings and improvements 59,006 53,890 Fixtures and equipment 14,615 14,386 Leasehold improvements 9,747 9,409 ---------- ---------- 108,147 101,215 Less: accumulated depreciation (14,982) (11,577) ---------- ---------- $ 93,165 $ 89,638 ========== ========== In accordance with SFAS No. 121 "Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to be Disposed of", the carrying value of long-lived assets is assessed for recoverability by management when changes in circumstances indicate that the carrying amount may not be recoverable, based on an analysis of undiscounted future expected cash flows from the use and ultimate disposition of the asset. (f) Deferred Income On Service Contracts--The Company sells product service contracts covering periods beyond the normal manufacturers' warranty periods, usually with terms of coverage (including manufacturers' warranty periods) of between 12 to 60 months. Revenues net of sales commissions are deferred and amortized on a straight-line basis over the life of the contracts after the expiration of applicable manufacturers' warranty periods. Service contract costs are charged to operations as incurred. (g) Interest Cost--Interest expense of $7,143,000, $5,624,000 and $4,707,000 for the years ended January 31, 1998, 1997 and 1996, respectively, is net of approximately $33,000, $193,000 and $207,000 of interest capitalized related to store construction. Total interest expense approximates interest paid for all years presented. (h) Loan Acquisition Costs--Direct expenses and fees associated with obtaining notes payable or long-term debt are capitalized and amortized to interest expense over the life of the loan. (i) Advertising Costs--Advertising costs are expensed as incurred. Advertising expense was approximately $32,813,000, $33,473,000 and $29,989,000 in 1998, 1997 and 1996, respectively. 27

(j) Store Opening and Closing Costs--Store opening costs are expensed as incurred. The costs associated with closing stores are accrued when the decision is made to close a location. (2) NET INCOME PER SHARE- Effective January 31, 1998, the Company adopted Statement of Financial Accounting Standards (SFAS) No. 128 "Earnings per Share," which replaces the calculation of primary and fully diluted earnings per share under previous accounting standards with basic and diluted earnings per share. As a result, the Company's reported net income per share amounts for the years ended January 31, 1997 and 1996 were restated as follows: Per Share Amounts ------------------- 1997 1996 ------- ------ Primary net income per share, as reported $0.80 $1.56 Effect of SFAS 128 0.02 0.06 ------- ------ Basic net income per share, as restated $0.82 $1.62 ======= ====== 1997 1996 ------- ------ Fully diluted net income per share, as reported $0.80 $1.56 Effect of SFAS 128 - - ------- ------- Diluted net income per share, as restated $0.80 $1.56 ======= ======= Basic net income per share is computed by dividing net income available to common shareholders by the weighted average number of common shares outstanding during the year. Diluted net income per share is computed by dividing net income available to common shareholders by the weighted average number of common and common equivalent shares outstanding during the year. Common share equivalents include the number of shares issuable upon the exercise of outstanding options, less the shares that could be purchased with the proceeds from the exercise of the options, based on the average trading price of the Company's common stock for 1998, 1997 and 1996. 28

The following table reconciles the basic and diluted net income per share computations for each year presented: 1998 ---------------------------------- Income Shares Per Share ------- ------- --------- Basic net income per share $7,412 7,919 $0.94 ========= Effect of stock options - 259 ------- ------- Diluted net income per share $7,412 8,178 $0.91 ======= ======= ======= 1997 --------------------------------- Income Shares Per Share ------- ------- --------- Basic net income per share $7,362 8,948 $0.82 ========= Effect of stock options - 271 -------- ------- Diluted net income per share $7,362 9,219 $0.80 ======= ======= ======= 1996 --------------------------------- Income Shares Per Share ------- ------- --------- Basic net income per share $14,573 8,970 $1.62 ========= Effect of stock options - 395 ------- ------- Diluted net income per share $14,573 9,365 $1.56 ======= ======= ======= (3) COMMON STOCK TRANSACTIONS- During the years ended January 31, 1998, 1997 and 1996, the Company purchased 567,000, 854,000 and 162,000 shares of its common stock for $5,018,000, $7,486,000 and $2,264,000, respectively. Subsequent to January 31, 1998 and through March 26, 1998, the Company purchased 70,000 shares of its common stock for $742,000. The Company is authorized by its Board of Directors to purchase an additional 527,000 shares of its common stock and all shares purchased will be held in treasury for possible future use. 29

(4) REVOLVING LINE OF CREDIT- The Company has a revolving credit agreement with seven banks which expires July 31, 2000. Under the terms of the agreement, available revolving credit borrowings are equal to the lesser of: (i) $100 million for the months of January through June and $150 million for the months of July through December or (ii) the sum of specific percentages of eligible accounts receivable and eligible inventories, as defined. Borrowings available are reduced by any letter of credit commitments outstanding. The Company had no outstanding borrowings under the revolving credit agreement at January 31, 1998. Outstanding borrowings under the revolving credit agreement totaled $12,142,000 at January 31, 1997. The carrying amount of the borrowings at January 31, 1997 approximates fair value as the revolving credit agreement bears a current market rate of interest. At January 31, 1998, a total of approximately $77,300,000 was available for borrowings under the revolving credit agreement. The interest rate charged on borrowings is prime or LIBOR plus 1.875% and commitment fees of 1/4% are payable on the unused portion. Borrowings are secured by certain fixed assets, accounts receivable and inventories. The revolving credit agreement contains restrictive covenants which require the Company to maintain specified levels of consolidated tangible net worth and limit capital expenditures and the incurrence of additional indebtedness. The revolving credit agreement also places restrictions on the amount of common stock repurchases and the payment of dividends. (5) LONG-TERM DEBT- Long-term debt consists of notes payable secured by certain land, buildings and leasehold improvements. Interest rates range from 7.00% to 9.95%. Principal and interest are payable monthly over terms which generally range from 10 to 15 years. Substantially all of the notes payable require balloon payments at the end of the scheduled term. Maturities of long-term debt are as follows (in thousands): Year Ending January 31, Amount ------------ ------- 1999 $ 2,959 2000 3,052 2001 3,944 2002 6,035 2003 4,918 2004 and thereafter 34,712 ------- $55,620 ======= 30

The fair value of the Company's long-term debt at January 31, 1998 and 1997 was approximately $56.6 million and $56.1 million, respectively. The fair value was estimated based on rates available to the Company for debt with similar terms and maturities. (6) EMPLOYEE BENEFITS- Stock Option Plans--Effective June 2, 1995, the Company adopted the REX Stores Corporation 1995 Omnibus Stock Incentive Plan (the Omnibus Plan), which amended and restated the 1994 Incentive Stock Option Plan. Under the Omnibus Plan, the Company may grant to officers and key employees awards in the form of incentive stock options, non-qualified stock options, stock appreciation rights, restricted stock, other stock-based awards and cash incentive awards. The Omnibus Plan also provides for yearly grants of non-qualified stock options to directors who are not employees of the Company. The exercise price of each stock based award must be at least 100% of the fair market value of the Company's common stock on the date of grant. A maximum of 2,000,000 shares of common stock are authorized for issuance under the Omnibus Plan and at January 31, 1998, 364,430 shares remained available for issuance. At January 31, 1998, 158,697 stock options also remained outstanding under the 1984 Incentive Stock Option Plan which expired in fiscal 1995. In November 1989, non-qualified executive stock options were issued to two key executives under a separate plan for 600,000 shares at the then-current market price of $3.38 per share. No additional shares are available for grant under this plan. At January 31, 1998, 512,079 of these options remained outstanding and exercisable. On February 26, 1997, the Company's Board of Directors approved a re-pricing of 362,035 stock options, with exercise prices ranging from $13.00 to $18.98 per share, to the market price as of the date of approval of $8.13 per share. Stock options held by employees who are members of the Board of Directors and stock options held by Non-Employee Directors were not re-priced. The Company accounts for its stock-based compensation plans under APB Opinion No. 25, "Accounting for Stock Issued to Employees", under which no compensation cost has been recognized. Had compensation cost for these plans been determined at fair value consistent with SFAS No. 123, "Accounting for Stock-Based Compensation", the Company's net income and net income per share would have been reduced to the following pro forma amounts: 31

1998 1997 1996 ------ ------ ------- Net income (000's): As reported $7,412 $7,362 $14,573 Pro forma 6,167 5,932 13,923 Basic net income per share: As reported 0.94 0.82 1.62 Pro forma 0.78 0.66 1.55 Diluted net income per share: As reported 0.91 0.80 1.56 Pro forma 0.79 0.72 1.54 The fair values of options granted were estimated as of the date of grant using a Black-Scholes option pricing model with the following weighted average assumptions used for grants in fiscal 1998, 1997 and 1996, respectively: risk-free interest rate of 5.7%, 6.3% and 6.3%; expected volatility of 41.5%, 46.7% and 46.7%; and a weighted average stock option life of 5 years. In accordance with the provisions of SFAS No. 123, the fair value method of accounting was not applied to options granted prior to February 1, 1995 in estimating the pro forma amounts. Therefore, the pro forma effect on net income and net income per share may not be representative of that to be expected in future years. The following summarizes stock option activity for the years ended January 31, 1998, 1997 and 1996 (options granted and cancelled during fiscal 1998 include the effect of the February 26, 1997 re-pricing): 1998 1997 1996 ----------------------------- ------------------------- -------------------------- Weighted Weighted Weighted Average Average Average Shares Exercise Shares Exercise Shares Exercise (000's) Price (000's) Price (000's) Price --------- --------- --------- --------- --------- --------- Outstanding at beginning of year 2,119 $12.15 2,069 $ 11.60 1,422 $ 9.93 Granted 653 9.13 202 15.47 768 13.90 Exercised (86) 7.20 (81) 5.34 (101) 4.32 Canceled or expired (398) 14.54 (71) 14.62 (20) 14.07 --------- --------- --------- --------- --------- --------- Outstanding at end of year 2,288 $11.06 2,119 $ 12.15 2,069 $11.60 ========= ========= ========= ========= ========= ========= Exercisable at end of year 1,368 $10.62 1,143 $ 10.37 997 $ 8.67 ========= ========= ========= ========= ========= ========= Weighted average fair value of options granted $4.68 $ 8.30 $9.02 ========= ========= ========= 32

Price ranges and other information for stock options outstanding as of January 31, 1998 were as follows: Outstanding Exercisable ----------------------------------------- ----------------------- Weighted Weighted Weighted Average Average Average Range of Shares Exercise Remaining Shares Exercise Exercise Prices (000's) Price Life (000's) Price - -------------------- --------- --------- --------- --------- --------- $3.38 512 $ 3.38 1.8 yrs. 512 $ 3.38 $6.88 to $8.13 363 7.98 2.9 yrs. 171 7.81 $10.38 to $15.26 928 12.84 7.7 yrs. 224 13.90 $16.75 to $18.98 485 18.06 5.5 yrs. 461 18.11 -------- ------- --------- -------- -------- 2,288 $11.06 5.2 yrs. 1,368 $10.62 ======== ======= ========= ======== ======== Profit Sharing Plan--The Company has a qualified, noncontributory profit sharing plan covering full-time employees who meet certain eligibility requirements. The Plan also allows 401(k) savings contributions by participants with certain Company matching contributions. Aggregate contributions to the Plan are determined annually by the Board of Directors and are not to exceed 15% of total compensation paid to all participants during such year. The Company contributed matching amounts of approximately $31,000, $28,000 and $36,000 for the years ended January 31, 1998, 1997 and 1996, respectively, under the Plan. (7) LEASES AND COMMITMENTS- The Company is committed under operating leases for certain warehouse and retail store locations. The lease agreements are for varying terms through 2007 and contain renewal options for additional periods. Real estate taxes, insurance and maintenance costs are generally paid by the Company. Contingent rentals based on sales volume are not significant. Certain leases contain scheduled rent increases and rent expense is recognized on a straight-line basis over the term of the leases. On August 30, 1989, the Company completed a transaction for the sale and leaseback of certain stores and warehouse facilities under an initial 15-year lease term. This transaction resulted in pre-tax financial statement gain of $15.6 million, which was deferred and is being amortized as a reduction to lease expense over the term of the leases. The unamortized deferred gain at January 31, 1998 was approximately $6.2 million. 33

The following is a summary of rent expense under operating leases (in thousands): Years ended Minimum Gain Sublease January 31, Rentals Amortization Income Total ------------ --------- ------------ --------- ------ 1998 $9,453 $(943) $(1,713) $6,797 1997 9,076 (629) (1,503) 6,944 1996 8,383 (405) (1,475) 6,503 Future minimum annual rentals and gain amortization on non-cancelable leases as of January 31, 1998 are as follows (in thousands): Minimum Gain Years ended January 31, Rentals Amortization ----------------------- -------- ------------- 1999 $ 8,591 $ 943 2000 7,995 943 2001 7,433 943 2002 6,456 943 2003 5,347 943 2004 and thereafter 8,786 1,492 ------- ------ $44,608 $6,207 ======= ====== (8) INCOME TAXES- The provision for income taxes for the years ended January 31, 1998, 1997 and 1996 consists of the following (in thousands): Years Ended January 31, ----------------------------------------- 1998 1997 1996 -------- -------- -------- Federal: Current $5,007 $ 5,803 $ 9,264 Deferred (957) (1,824) (1,358) -------- -------- -------- 4,050 3,979 7,906 -------- -------- -------- State and Local: Current 848 1,056 1,846 Deferred (58) (230) (250) -------- -------- -------- 790 826 1,596 -------- -------- -------- $4,840 $ 4,805 $ 9,502 ======== ======== ======== 34

The tax effects of significant temporary differences representing deferred tax assets and liabilities are as follows: January 31, -------------------------------- 1998 1997 ---------- ----------- Assets: Deferral of service contract income $ 9,991 $ 9,933 Sale and leaseback deferred gain 2,172 2,502 Accrued liabilities 2,257 957 Other items 4,355 3,117 ---------- ----------- 18,775 16,509 Liabilities: Inventory accounting (1,064) (1,064) Depreciation (271) (1,332) Other items - (50) ---------- ----------- (1,335) (2,446) ---------- ----------- Total net future income tax benefits $17,440 $14,063 ========== =========== The Company paid income taxes of $7,604,000, $9,801,000 and $10,100,000 in the years ended January 31, 1998, 1997 and 1996, respectively. The effective income tax rate on consolidated pre-tax income differs from the Federal income tax statutory rate as follows: Years Ended January 31, ---------------------------------- 1998 1997 1996 ------- ------- -------- Federal income tax at statutory rate 35.0% 35.0% 35.0% State and local taxes, net of federal tax benefit 4.2 4.1 4.2 Other .3 .4 .3 ------- ------- -------- 39.5% 39.5% 39.5% ======= ======= ======== (9) CONTINGENCIES- The Company is involved in various legal actions arising in the normal course of business. After taking into consideration legal counsels' evaluation of such actions, management is of the opinion that their outcome will not have a significant effect on the Company's consolidated financial statements. 35

Report of Independent Public Accountants To the Shareholders and Board of Directors of REX Stores Corporation: We have audited the accompanying consolidated balance sheets of REX Stores Corporation (a Delaware corporation) and subsidiaries as of January 31, 1998 and 1997, and the related consolidated statements of income, shareholders' equity and cash flows for each of the three fiscal years in the period ended January 31, 1998. These consolidated financial statements and the schedule referred to below are the responsibility of the Company's management. Our responsibility is to express an opinion on these consolidated financial statements and the schedule based on our audits. We conducted our audits in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of REX Stores Corporation and subsidiaries as of January 31, 1998 and 1997, and the results of their operations and their cash flows for each of the three fiscal years in the period ended January 31, 1998, in conformity with generally accepted accounting principles. Our audits were made for the purpose of forming an opinion on the basic consolidated financial statements taken as a whole. The schedule listed under Part IV, Item 14(a)(2) is presented for purposes of complying with the Securities and Exchange Commission's rules and is not part of the basic consolidated financial statements. This schedule has been subjected to the auditing procedures applied in our audits of the basic consolidated financial statements and, in our opinion, fairly states in all material respects the financial data required to be set forth therein in relation to the basic consolidated financial statements taken as a whole. Cincinnati, Ohio, ARTHUR ANDERSEN LLP March 26, 1998 36

REX STORES CORPORATION AND SUBSIDIARIES SCHEDULE II - VALUATION AND QUALIFYING ACCOUNTS FOR THE YEARS ENDED JANUARY 31, 1998, 1997 AND 1996 (In Thousands) Additions Deductions ----------- ------------------ Balance Charges for Which Beginning Charged Cost Reserves Were Balance End of Year and Expenses Created of Year ----------- ------------ ----------------- ------------ 1998 - ---- Allowance for doubtful accounts $376 $474 $422 $428 ==== ==== ==== ==== 1997 - ---- Allowance for doubtful accounts $638 $146 $408 $376 ==== ==== ==== ==== 1996 - ---- Allowance for doubtful accounts $784 $287 $433 $638 ==== ==== ==== ==== 37

ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE None. PART III ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT The information required by this Item 10 is incorporated herein by reference to the Company's Proxy Statement for its Annual Meeting of Shareholders on June 4, 1998, except for certain information concerning the executive officers of the Company which is set forth in Part I of this report. ITEM 11. EXECUTIVE COMPENSATION The information required by this Item 11 is set forth in the Company's Proxy Statement for its Annual Meeting of Shareholders on June 4, 1998 and is incorporated herein by reference. ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT The information required by this Item 12 is set forth in the Company's Proxy Statement for its Annual Meeting of Shareholders on June 4, 1998 and is incorporated herein by reference. ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS The information required by this Item 13 is set forth in the Company's Proxy Statement for its Annual Meeting of Shareholders on June 4, 1998 and is incorporated herein by reference. PART IV ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K (a)(1) Financial Statements. The following consolidated financial statements of the Company and its subsidiaries are incorporated by reference as part of this report at Item 8 hereof. Consolidated Balance Sheets as of January 31, 1998 and 1997 Consolidated Statements of Income for the years ended January 31, 1998, 1997 and 1996 Consolidated Statements of Cash Flows for the years ended January 31, 1998, 1997 and 1996 38

Consolidated Statements of Shareholders' Equity for the years ended January 31, 1998, 1997 and 1996 Notes to Consolidated Financial Statements Report of Independent Public Accountants (a)(2) Financial Statement Schedules. The following financial statement schedule is incorporated by reference as part of this report at Item 8 hereof. Schedule II - Valuation and Qualifying Accounts All other schedules are omitted because they are not applicable or not required, or because the required information is included in the consolidated financial statements or notes thereto. (a)(3) Exhibits. See Exhibit Index at page 42 of this report. Management Contracts and Compensatory Plans and Arrangements Employment Agreement dated September 1, 1995 between Rex Radio and Television, Inc. and Stuart Rose -- Form 10-Q for quarter ended October 31, 1995, exhibit 10(a). Employment Agreement dated September 1, 1995 between Rex Radio and Television, Inc. and Lawrence Tomchin -- Form 10-Q for quarter ended October 31, 1995, exhibit 10(b). Executive Stock Option dated September 22, 1993 to Stuart Rose -- Form 10-Q for quarter ended October 31, 1993, exhibit 10(a). Executive Stock Option dated September 22, 1993 to Lawrence Tomchin -- Form 10-Q for quarter ended October 31, 1993, exhibit 10(b). Executive Stock Option dated November 20, 1989 to Stuart Rose -- Form 10-Q for quarter ended October 31, 1989, exhibit 6.3. Executive Stock Option dated November 20, 1989 to Lawrence Tomchin -- Form 10-Q for quarter ended October 31, 1989, exhibit 6.4. Subscription Agreement dated December 1, 1989 from Stuart Rose -- Form 10-Q for quarter ended October 31, 1989, exhibit 6.5. 39

Subscription Agreement dated December 1, 1989 from Lawrence Tomchin -- Form 10-Q for quarter ended October 31, 1989, exhibit 6.6. 1984 Incentive Stock Option Plan -- Form 10-K for fiscal year ended January 31, 1992, exhibit 10(a). 1995 Omnibus Stock Incentive Plan -- Post-effective amendment No. 1 to Form S-8 registration statement (No. 33-81706), exhibit 4(c). (b) Reports on Form 8-K. No reports on Form 8-K were filed by the Company during the quarter ended January 31, 1998. 40

SIGNATURES Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized. REX STORES CORPORATION By /s/ STUART ROSE -------------------------- Stuart Rose Chairman of the Board and Chief Executive Officer Date: April 17, 1998 Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated. SIGNATURE CAPACITY DATE - --------- -------- ---- /s/ STUART ROSE - ------------------------ Chairman of the Board ) Stuart Rose and Chief Executive ) Officer (principal ) executive officer) ) ) /s/ DOUGLAS BRUGGEMAN ) - ------------------------ Vice President-Finance ) Douglas Bruggeman and Treasurer (principal ) financial and accounting ) officer) ) ) LAWRENCE TOMCHIN* President, Chief Operating ) - ------------------------- Officer and Director ) Lawrence Tomchin ) ) /s/ EDWARD KRESS ) April 17, 1998 - ------------------------- Secretary and Director ) Edward Kress ) ) ) ROBERT DAVIDOFF* Director ) - ----------------------- ) Robert Davidoff ) ) ) LEE FISHER* Director ) - ----------------------- ) Lee Fisher ) *By /s/ STUART ROSE ----------------------------------- (Stuart Rose, Attorney-in-Fact) 41

EXHIBIT INDEX Page ---- (3) Articles of incorporation and by-laws: 3(a) Certificate of Incorporation, as amended (incorporated by reference to Exhibit 3(a) to Form 10-K for fiscal year ended January 31, 1994, File No. 0-13283) 3(b)(1) By-Laws, as amended (incorporated by reference to Registration Statement No. 2-95738, Exhibit 3(b), filed February 8, 1985) 3(b)(2) Amendment to By-Laws adopted June 29, 1987 (incorporated by reference to Exhibit 4.5 to Form 10-Q for quarter ended July 31, 1987, File No. 0-13283) (4) Instruments defining the rights of security holders, including indentures: 4(a) Amended and Restated Loan Agreement dated July 31, 1995 among Rex Radio and Television, Inc., Kelly & Cohen Appliances, Inc., Stereo Town, Inc. and Rex Kansas, Inc. (the "Borrowers"), the lenders named therein, and NatWest Bank N.A. as agent (incorporated by reference to Exhibit 4(a) to Form 10-Q for quarter ended July 31, 1995, File No. 0-13283) 4(b) Form of Amended and Restated Revolving Credit Note (incorporated by reference to Exhibit 4(b) to Form 10-Q for quarter ended July 31, 1995, File No. 0-13283) 4(c) Guaranty of registrant dated July 31, 1995 (incorporated by reference to Exhibit 4(c) to Form 10-Q for quarter ended July 31, 1995, File No. 0-13283) 4(d) Borrowers Pledge Agreement as amended and restated through July 31, 1995 (incorporated by reference to Exhibit 4(d) to Form 10-Q for quarter ended July 31, 1995, File No. 0-13283) 4(e) Borrowers General Security Agreement as amended and restated through July 31, 1995 (incorporated by reference to Exhibit 4(e) to Form 10-Q for quarter ended July 31, 1995, File No. 0-13283) 4(f) Parent Pledge Agreement as amended and restated through July 31, 1995 (incorporated by reference to Exhibit 4(f) to Form 10-Q for quarter ended July 31, 1995, File No. 0-13283) 4(g) Parent General Security Agreement as amended and restated through July 31, 1995 (incorporated by reference to Exhibit 4(g) to Form 10-Q for quarter ended July 31, 1995, File No. 0-13283) 42

4(h) Amendment Agreement dated April 1, 1997 to Amended and Restated Loan Agreement dated July 31, 1995 and to Guaranty of registrant dated July 31, 1995 among the Borrowers, the registrant, the lenders named therein and Fleet Bank, N.A. (as successor to NatWest Bank N.A.) as agent (incorporated by reference to Exhibit 4(h) to Form 10-Q for quarter ended April 30, 1997, File No. 0-13283) Pursuant to Item 601(b)(4)(iii)(A) of Regulation S-K, the registrant has not filed as an exhibit to this Form 10-K certain instruments with respect to long-term debt where the total amount of securities authorized thereunder does not exceed 10% of the total assets of the registrant and its subsidiaries on a consolidated basis. The registrant agrees to furnish a copy of such instruments to the Commission upon request. (10) Material contracts: 10(a) Employment Agreement dated September 1, 1995 between Rex Radio and Television, Inc. and Stuart Rose (incorporated by reference to Exhibit 10(a) to Form 10-Q for quarter ended October 31, 1995, File No. 0-13283) 10(b) Employment Agreement dated September 1, 1995 between Rex Radio and Television, Inc. and Lawrence Tomchin (incorporated by reference to Exhibit 10(b) to Form 10-Q for quarter ended October 31, 1995, File No. 0-13283) 10(c) Executive Stock Option dated September 22, 1993 granting Stuart Rose an option to purchase 300,000 shares of registrant's Common Stock (incorporated by reference to Exhibit 10(a) to Form 10-Q for quarter ended October 31, 1993, File No. 0-13283) 10(d) Executive Stock Option dated September 22, 1993 granting Lawrence Tomchin an option to purchase 150,000 shares of registrant's Common Stock (incorporated by reference to Exhibit 10(b) to Form 10-Q for quarter ended October 31, 1993, File No. 0-13283) 10(e) Executive Stock Option dated November 20, 1989 granting Stuart Rose an option to purchase 300,000 shares of registrant's Common Stock (incorporated by reference to Exhibit 6.3 to Form 10-Q for quarter ended October 31, 1989, File No. 0-13283) 10(f) Executive Stock Option dated November 20, 1989 granting Lawrence Tomchin an option to purchase 300,000 shares of registrant's Common Stock (incorporated by reference to Exhibit 6.4 to Form 10-Q for quarter ended October 31, 1989, File No. 0-13283) 43

10(g) Subscription Agreement dated December 1, 1989 from Stuart Rose to purchase 300,000 shares of registrant's Common Stock (incorporated by reference to Exhibit 6.5 to Form 10-Q for quarter ended October 31, 1989, File No. 0-13283) 10(h) Subscription Agreement dated December 1, 1989 from Lawrence Tomchin to purchase 140,308 shares of registrant's Common Stock (incorporated by reference to Exhibit 6.6 to Form 10-Q for quarter ended October 31, 1989, File No. 0-13283) 10(i) 1984 Incentive Stock Option Plan, as amended effective February 6, 1992 (incorporated by reference to Exhibit 10(a) to Form 10-K for fiscal year ended January 31, 1992, File No. 0-13283) 10(j) 1995 Omnibus Stock Incentive Plan, as amended and restated effective June 2, 1995 (incorporated by reference to Exhibit 4(c) to Post- Effective Amendment No. 1 to Form S-8 Registration Statement No. 33-81706) 10(k) Real Estate Purchase and Sale Agreement (the "Agreement") dated March 8, 1989 between registrant as Guarantor, four of its subsidiaries (Rex Radio and Television, Inc., Stereo Town, Inc., Kelly & Cohen Appliances, Inc., and Rex Radio Warehouse Corporation) as Sellers and Holman/Shidler Investment Corporation as Buyer (incorporated by reference to Exhibit (b)(5)(1) to Amendment No. 1 to Schedule 13E-4 filed March 15, 1989, File No. 5-35828) The Table of Contents to the Agreement lists Exhibits A through P to the Agreement. Each of the following listed Exhibits to the Agreement is incorporated herein by reference as indicated below. The registrant will, upon request of the Commission, provide any of the additional Exhibits to the Agreement. 10(l) Form of Full Term Lease (incorporated by reference to Exhibit (b)(5)(2) to Amendment No. 1 to Schedule 13E-4 filed March 15, 1989, File No. 5-35828) 10(m) Form of Divisible Lease (incorporated by reference to Exhibit (b)(5)(3) to Amendment No. 1 to Schedule 13E-4 filed March 15, 1989, File No. 5-35828) 10(n) Form of Terminable Lease (incorporated by reference to Exhibit (b)(5)(4) to Amendment No. 1 to Schedule 13E-4 filed March 15, 1989, File No. 5-35828) 10(o) Continuing Lease Guaranty (incorporated by reference to Exhibit (b)(5)(5) to Amendment No. 1 to Schedule 13E-4 filed March 15, 1989, File No. 5-35828) 44

10(p) Agreement Regarding Leases and Amending Amended and Restated Real Property Purchase and Sale Agreement dated May 17, 1990 among Shidler/West Finance Partners I (Limited Partnership); Rex Radio and Television, Inc., Stereo Town, Inc., Kelly & Cohen Appliances, Inc. and Rex Radio Warehouse Corporation; and registrant (incorporated by reference to Exhibit (a)(10) to Form 10-Q for quarter ended April 30, 1990, File No. 0-13283) 10(q) Lease dated December 12, 1994 between Stuart Rose/Beavercreek, Inc. and Rex Radio and Television, Inc. (incorporated by reference to Exhibit 10(q) to Form 10-K for fiscal year ended January 31, 1995, File No. 0-13283) (21) Subsidiaries of the registrant: 21(a) Subsidiaries of registrant.............................................. 46 (23) Consents of experts and counsel: 23(a) Consent of Arthur Andersen LLP to use its report dated March 26, 1998 included in this annual report on Form 10-K into registrant's Registration Statements on Form S-8 (Registration Nos. 33-3836, 33-81706 and 33-62645)................................................................. 47 (24) Power of attorney: Powers of attorney of each person whose name is signed to this report on Form 10-K pursuant to a power of attorney.................................. 48-50 (27) Financial data schedule: Financial data schedule.................................................... 51 (99) Additional exhibits: Cautionary Statement under the Safe Harbor for Forward-Looking Statements in the Private Securities Litigation Reform Act of 1995 (incorporated by reference to Exhibit 99 to Form 10-Q for quarter ended October 31, 1997, File No. 0-13283) 45

EXHIBIT 21(a) SUBSIDIARIES OF REX STORES CORPORATION State of Name Incorporation ---- ------------- Rex Radio and Television, Inc. Ohio Stereo Town, Inc. Georgia Kelly & Cohen Appliances, Inc. Ohio Rex Kansas, Inc.(1) Kansas AVA Acquisition Corp.(2) Delaware A.V. Compadres, Inc.(2) Ohio - -------------------- (1) Wholly-owned subsidiary of Rex Radio and Television, Inc. (2) Non-operating subsidiary

EXHIBIT 23(a) CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS As independent public accountants, we hereby consent to the incorporation of our report included in this Form 10-K into the Company's previously filed Registration Statements on Form S-8 (No. 33-3836, No. 33-81706 and No. 33-62645). Arthur Andersen LLP Cincinnati, Ohio, April 14, 1998

POWER OF ATTORNEY KNOW ALL MEN BY THESE PRESENTS, that the undersigned, in his capacity as a director or officer, or both, of REX Stores Corporation, a Delaware corporation (the "Company"), hereby constitutes and appoints Stuart A. Rose and Edward M. Kress, or any one of them, his true and lawful attorneys-in-fact and agents, with full power of substitution and resubstitution, for him and in his name, place and stead, in any and all capacities, to sign the Company's Annual Report on Form 10-K for the Fiscal Year Ended January 31, 1998 and to sign any and all amendments thereto, and to file the same, with all exhibits thereto, and other documents in connection therewith, with the Securities and Exchange Commission, granting unto such attorneys-in-fact and agents, and any one of them, full power and authority to do and perform each and every act and thing requisite and necessary to be done, as fully to all intents and purposes as he might or could do in person, hereby ratifying and confirming all that such attorneys-in-fact and agents or any one of them, or their or his substitute or substitutes, may lawfully do or cause to be done by virtue hereof. IN WITNESS WHEREOF, the undersigned has executed this instrument on this 15th day of April, 1998. /s/ LAWRENCE TOMCHIN -------------------------------- Lawrence Tomchin

POWER OF ATTORNEY KNOW ALL MEN BY THESE PRESENTS, that the undersigned, in his capacity as a director or officer, or both, of REX Stores Corporation, a Delaware corporation (the "Company"), hereby constitutes and appoints Stuart A. Rose and Edward M. Kress, or any one of them, his true and lawful attorneys-in-fact and agents, with full power of substitution and resubstitution, for him and in his name, place and stead, in any and all capacities, to sign the Company's Annual Report on Form 10-K for the Fiscal Year Ended January 31, 1998 and to sign any and all amendments thereto, and to file the same, with all exhibits thereto, and other documents in connection therewith, with the Securities and Exchange Commission, granting unto such attorneys-in-fact and agents, and any one of them, full power and authority to do and perform each and every act and thing requisite and necessary to be done, as fully to all intents and purposes as he might or could do in person, hereby ratifying and confirming all that such attorneys-in-fact and agents or any one of them, or their or his substitute or substitutes, may lawfully do or cause to be done by virtue hereof. IN WITNESS WHEREOF, the undersigned has executed this instrument on this 13th day of April, 1998. /s/ ROBERT DAVIDOFF -------------------------------- Robert Davidoff

POWER OF ATTORNEY KNOW ALL MEN BY THESE PRESENTS, that the undersigned, in his capacity as a director or officer, or both, of REX Stores Corporation, a Delaware corporation (the "Company"), hereby constitutes and appoints Stuart A. Rose and Edward M. Kress, or any one of them, his true and lawful attorneys-in-fact and agents, with full power of substitution and resubstitution, for him and in his name, place and stead, in any and all capacities, to sign the Company's Annual Report on Form 10-K for the Fiscal Year Ended January 31, 1998 and to sign any and all amendments thereto, and to file the same, with all exhibits thereto, and other documents in connection therewith, with the Securities and Exchange Commission, granting unto such attorneys-in-fact and agents, and any one of them, full power and authority to do and perform each and every act and thing requisite and necessary to be done, as fully to all intents and purposes as he might or could do in person, hereby ratifying and confirming all that such attorneys-in-fact and agents or any one of them, or their or his substitute or substitutes, may lawfully do or cause to be done by virtue hereof. IN WITNESS WHEREOF, the undersigned has executed this instrument on this 13th day of April, 1998. /s/ LEE FISHER -------------------------------- Lee Fisher

5 1,000 YEAR JAN-31-1998 FEB-1-1997 JAN-31-1998 16,937 1,637 2,347 428 126,498 157,824 108,147 14,982 260,530 78,937 52,661 97 0 0 105,685 260,530 411,005 411,005 297,757 297,757 0 0 7,143 12,252 4,840 7,412 0 0 0 7,412 .94 .91

5 0000744187 REX STORES CORPORATION 1,000 U.S. DOLLARS 9-MOS JAN-31-1998 FEB-1-1997 OCT-31-1997 1 1,836 1,627 1,228 437 169,345 184,152 107,855 14,179 288,047 110,890 51,499 97 0 0 102,697 288,047 266,131 266,131 191,396 191,396 0 0 5,406 4,196 1,657 2,539 0 0 0 2,539 .32 .32

5 0000744187 REX STORES CORPORATION 1,000 U.S. DOLLARS 6-MOS JAN-31-1998 FEB-1-1997 JUL-31-1997 1 1,656 1,647 1,154 346 148,174 162,950 104,893 13,524 262,838 84,953 52,219 97 0 0 102,150 262,838 178,164 178,164 127,921 127,921 0 0 3,495 3,565 1,409 2,156 0 0 0 2,156 .27 .27

5 0000744187 REX STORES CORPORATION 1,000 U.S. DOLLARS 3-MOS JAN-31-1998 FEB-1-1997 APR-30-1997 1 2,119 1,633 880 338 156,318 170,017 102,034 12,554 268,016 91,179 52,323 96 0 0 100,455 268,016 88,265 88,265 63,870 63,870 0 0 1,532 1,318 521 797 0 0 0 797 .10 .10

5 0000744187 REX STORES CORPORATION 1,000 U.S. DOLLARS YEAR JAN-31-1997 FEB-1-1996 JAN-31-1997 1 3,959 1,645 1,853 376 135,033 149,877 101,215 11,577 248,034 69,726 51,102 96 0 0 102,624 248,034 427,378 427,378 317,767 317,767 0 0 5,624 12,167 4,805 7,362 0 0 0 7,362 .82 .80

5 0000744187 REX STORES CORPORATION 1,000 U.S. DOLLARS 9-MOS JAN-31-1997 FEB-1-1996 OCT-31-1996 1 1,763 1,625 1,476 403 170,879 184,047 97,159 10,791 278,684 110,586 40,605 96 0 0 103,837 278,684 283,579 283,579 211,424 211,424 0 0 4,030 5,757 2,273 3,484 0 0 0 3,484 .37 .36

5 0000744187 REX STORES CORPORATION 1,000 U.S. DOLLARS 6-MOS JAN-31-1997 FEB-1-1996 JUL-31-1996 1 2,028 1,605 785 308 148,850 160,850 86,790 10,265 245,644 75,327 40,640 96 0 0 105,889 245,644 193,036 193,036 143,434 143,434 0 0 2,670 5,341 2,109 3,232 0 0 0 3,232 .34 .33

5 0000744187 REX STORES CORPORATION 1,000 U.S. DOLLARS 3-MOS JAN-31-1997 FEB-1-1996 APR-30-1996 1 1,931 1,565 810 402 164,920 174,639 80,752 9,436 254,224 94,111 32,090 96 0 0 104,178 254,224 97,384 97,384 72,503 72,503 0 0 1,203 2,902 1,146 1,756 0 0 0 1,756 .19 .18

5 0000744187 REX STORES CORPORATION 1,000 U.S. DOLLARS YEAR JAN-31-1996 FEB-1-1995 JAN-31-1996 1 685 1,525 2,242 638 146,566 156,023 78,978 8,671 234,599 76,007 32,590 95 0 0 102,251 234,599 442,217 442,217 327,636 327,636 0 0 4,707 24,075 9,502 14,573 0 0 0 14,573 1.62 1.56